The Beginner’s Guide to Tether – All You Need To Know

Few other cryptocurrencies have attracted the same level of controversy as Tether did in the past two years.

The stablecoin that facilitates fiat money transfers without currency regulation has come under accusations of misconduct.

However, crypto industry experts still rate it highly (3rd most valuable cryptocurrency) and consider the allegations nothing more than bad rumors to create FUD (fear, uncertainty, doubt) movement.

Tether works on the Omni platform and top of Bitcoin and Ethereum blockchains, reducing transaction times and fees to make money transfers faster and more convenient for all parts involved.

Tether in a Nutshell

  • The first Tether tokens were released in 2014 on the Bitcoin blockchain.
  • Tether is a centralized, commissioned, and trust-dependent stablecoin
  • Tether is pegged to the U.S. Dollar (USDT) and the Euro (EURT)
  • Tether plans to expand its use to the Japanese Yen and the GBP.
  • Tether value is immune to cryptocurrency volatility.
  • Tether value can only fluctuate as much as the fiat currency that it is pegged to does
  • Tether works on the Omni Layer on the Bitcoin blockchain.
  • Tether is available as an ERC-20 token on Ethereum.

What is Tether?

Tether (₮) is a centralized digital asset pegged to fiat currencies. It is a crypto that uses blockchain technology in similar ways that other cryptocurrencies do. Still, it maintains a stable value in direct correspondence with the value of real-life money, hence its “stablecoin” title.

Tether started as a fiat equivalent for USD in 2017 and earned its abbreviation as USDT. It went on to do the same for EUR (as EURT), and ongoing efforts aim to soon peg it to the Japanese Yen, as JYPT.

Right now, there are four distinct Tether tokens:

  • One pegged to US dollar on Bitcoin’s Omni Layer.
  • One pegged to Euro on Bitcoin’s Omni Layer.
  • One pegged to US dollar as an ERC-20 token on Ethereum.
  • One pegged to Euro as an ERC-20 token on Ethereum.

A live beta deployment on Litecoin is also in tests with plans to launch Tether as an ERC-20 token on this blockchain.

One Tether (₮) unit was always meant to have a value of $1. Its value has always been around that mark, descending as most as $0.88 and reaching $1.05 at its peak.  

A brief history of Tether

Tether was born on 6 October 2014 from Realcoin – an initial project from Brock Pierce, Reeve Collins, and Craig Sellars to create a utility token on top of the Bitcoin blockchain. According to the whitepaper, this token would facilitate quick cross-border transfers in fiat money while maintaining a stable value to its pegged currency.

Tether was developed using the Omni Layer protocol – an open-source program that acts as layer software built on Bitcoin, allowing the Tether community to track and validate the transfer of tokens.

The first online exchange for approving the use of Tether was Bitfinex from Hong Kong in 2015. For a brief period, between 2015 and 2017, Taiwanese banks used Tether to transfer U.S. dollars internationally.

When a lawsuit with the Wells Fargo Bank in the United States blocked this process, Tether started developing ways to move to other blockchains besides Bitcoin.

At that point, the company started adjusting the token to the necessities of ledgers like Ethereum and Litecoin. Additionally, it restricted US customers and stopped providing markets denominated in the U.S. dollar.

In an ongoing court case against the digital exchange of Bitfinex and Tether, the New York Attorney General Letitia James accused Tether Limited and iFinex Inc. (Bitfinex operator) of hiding up to $850 million in Tether coins during times of high volatility.

According to press reports, in their response to the U.S. court, Tether revealed that the present cash and cash reserves summing up to $2.1 billion only amount to 74% of the current outstanding tethers. It means that the stablecoin is not completely pegged to the U.S. dollar and that one Tether unity is worth just 0.74 cents.

At the time of writing, Bitfinex and Tether had won a motion in the New York Supreme Court’s appellate division that maintained their rights not to disclose further paperwork. The case goes on with a major advantage for Tether and Co., who are now looking to address the side effects that this affair had on their digital assets’ popularity and credibility.

How Tether Works

Tether Limited backs up every Tether token that is the subject of a transaction on the ledger through its reserves. The Hong Kong-based company acts as a 3rd party in all trades on the blockchain and a custodian of the digital assets they involve. 

The entire process takes place through the Tether Technology Stack that includes 3 layers:

  • The Bitcoin Blockchain

The Tether ledger is built on the Bitcoin blockchain through the Omni consensus system.

  • The Omni Layer Protocol

Omni technology enables the creation and destruction of Tether tokens as well as the monitoring of their circulation. Additionally, it allows users to trade and store them in secure environments like the Omni Wallet or cold-storage systems.

  • The Tether Limited Layer

This layer supports the Tether Limited entity that enables the exchange between fiat currencies and Tether tokens. It is also responsible for managing integrations with Bitcoin wallets and operating Tether. It is a web wallet for sending, receiving, and storing Tether.

Tether uses a Proof of Reserves system to confirm that an equal amount of fiat currency backs up the entire number of tokens in circulation. The fiat assets are the reserves held by Tether Limited, which guarantee consistent parity between one USDT and one USD. 

Tether Limited offers Proof of Reserves by regularly publishing their bank balance reports and undergoing periodic audits by professionals.

Each Tether released on the ledger via the Omni Layer protocol also exists on the Bitcoin blockchain. It means that it can be tracked via its transactional history and audited publicly.

Users that trade or redeem Tether tokens do so through the bank account of Tether Limited, which uses fiat currency to complete transactions. Again, this proof of ongoing trades is public and accessible by the users.

Tether also provides a Transparency Page where users can view the information regarding their transactions on the ledger.

Tether Applications

Tether is a stablecoin on the Omni protocol, a platform for a significant number of digital assets all anchored on blockchains like the ones used by Bitcoin and Ethereum.

Each Tether token is a digital replicate of one fiat currency unit, so, 1USDT = $1. However, for this parity to exist, the exchange that makes the trade must reserve U.S. dollars to back the transaction.

Centralized companies release stablecoins as pegged digital assets to fiat currencies and use them to complete money transfers quickly and at a much lower cost than traditional banking transactions.

Crypto exchanges can also use stablecoins like Tether to create currency pairs and trade fiat money without necessarily accepting fiat in the first place. A BTC-USDT pair can simulate a BTC-USD trade without using USD since the value of Tether is pegged to the real-life currency.

Tether suits traders and investors on the cryptocurrency market who want an alternative to fiat currencies’ lengthy and costly transactions.

Tether uses something called Proof of Reserves – the process through which it validates the backing up of every unit of USDT with its value in real-life USD. 

According to the Tether Whitepaper, the system is fully reserved when the sum of all tethers in existence (at any point in time) is exactly equal to the balance of USD held in our reserve.

How to buy and own Tether

The first place that you might want to buy Tether from its mothership, Tether Limited. Here, you can submit U.S. dollars in exchange for USDT tokens at a 1:1 parity. All you need is a wallet compatible with this stablecoin, where you will receive the equivalent of your purchase in Tether.

You can also buy Tether by trading other cryptocurrencies on crypto markets. Your best choices include:

Some of the most popular online exchanges for buying Tether are:

Where to store Tether

Like it is the case for many other cryptos, you can choose to store your Tether tokens in various wallets that range from hot to cold. Here are some handy solutions:

Hardware wallets

Also known as cold storage for cryptocurrency, hardware wallets are memory sticks developed to keep your digital assets secure. Unless someone gets hold of your login details (pin and password) and physically accesses it, your cryptos should be perfectly safe.

You may store your Tether on hardware wallets like:

Software wallets

Online platforms that support the Omni Layer can be reasonably safe storing solutions for your Tether. Most of them come with user-friendly interfaces and are available for iOS or Android-running smartphones, too, so you can check on your tokens wherever you go.

Bitcoin live price
price change

A few popular software wallets for storing Tether include:

The advantages of using Tether

  • Tether is pegged to fiat currencies, so it is anchored to their real-life value.
  • So far, Tether has had a stable course in fiat currencies.
  • Every Tether is 100% backed by Tether Limited and affiliated entities.
  • Tether transaction times take only a few minutes to complete
  • Tether has a zero-fee policy for deposits and withdrawals using this token.
  • The value of Tether reserves is published daily for complete transparency.
  • Tether enjoys the same level of security as the blockchain that is built on
  • Digital-to-fiat currency through Tether is widely used today by big-name exchanges.

The risks of investing in Tether

  • The recent case against Bitfinex and Tether Limited has raised suspicions about possible market manipulations.
  • It is uncertain if Tether is the subject of a FUD campaign or if the company hides information about its ability to ensure enough reserves to cover the entire amount of currently available Tether coins at a 1:1 parity with U.S. dollars.
Stay up to date with our latest articles

More posts

Smart Contracts Vulnerabilities Specific to The DeFi Space

As the financial world moves increasingly online, it's becoming more and more essential to ensure that all transactions run securely. One way this is possible is through the use of smart contracts.  Smart contracts are computer programs that automatically execute the terms of a contract. They provide a secure way to conduct transactions without relying on third-party intermediaries.  While the use of smart contracts offers many advantages, they are also vulnerable to attack. In this blog, we will explore how…

Malicious Attacks on Smart Contracts that Auditors Can Easily Identify

With many businesses adopting blockchain technology and Smart Contracts, offering reliable security audits in the industry has become increasingly important.  Businesses may protect their assets and contracts by recognizing and preventing harmful assaults. This blog post will explore the different attacks a group of criminals can carry on Smart Contracts. We'll also look at real-world instances of assaults to help you secure your contracts. What are Smart Contracts? Understanding the Benefits of This Technology What are smart contracts? They are…

How Smart Contract Audit Can Help Prevent Hacks

As companies move toward implementing smart contracts, the need for technical audits becomes increasingly essential. Having a third-party auditor check your contracts for vulnerabilities can prevent your company from suffering from a hacking attack.  What are Smart Contracts? A smart contract is a script that automatically carries out a contract's provisions. Smart contracts are self-executing, meaning that once the system verifies the meeting of pre-determined conditions, the contract will automatically execute. This eliminates the need for intermediaries such as lawyers…

Top 10 Ways to Earn Free Bitcoin in 2022

Here are the best ways to earn free Bitcoin when your purse is light. --- Are you interested in Bitcoin, but still hesitant to risk putting money towards it? Alternatively, are you looking to sat every sat possible, but lack the dry powder to buy more? Here’s a secret: you can put more bitcoin in your pocket without spending a dime – or even doing any real work.  That’s not to say you’ll earn much bitcoin without either of those…

Are Gold-Backed Tokens Worth Investing During Crypto Bear Market?

The crypto market is under the complete control of bears, investors taking short positions to profit from declining prices. In this unstable environment, new capitalists are fearful or skeptical when funding projects. Instead, they turn to more reliable assets that would not wipe out their portfolios when or if they flop. Gold-backed tokens represent a category of assets ready to provide portfolio stability and allow investors to overcome the bear market without too many losses. On the contrary, gold-pegged tokens…

What is Taro? Trading Assets and Currencies on Bitcoin

Taro leverages Bitcoin, lightning, and Taproot to enable the peer-to-peer transfer of currencies and assets beyond just BTC. —  Worried that Bitcoin is too boring to play within the growing digital asset economy? Fret no longer.  Using Taro, the original blockchain network can support the decentralized exchange of multiple assets – including fiat currencies. Moreover, the protocol works together with the lightning network, letting users transact – instantly and for free – with non-BTC-denominated balances.  Read below to learn about…

What is Fedimint? The Custody Solution to Bitcoin Privacy

Fedimint combines distributed custody with blind-signed ecash tokens to let Bitcoin users transact in private. --- Despite its growth, Bitcoin still faces some glaring limitations to reaching mass adoption as a fully censorship-proof payments network. One of them is privacy. Bitcoin’s ledger is fully open and public, meaning anyone can track another person’s transactions if they know his public address.  The other is a custody problem. While wallet software UX has improved considerably over time, many Bitcoin holders still store…

What Is a Crypto Bear Trap?

Cryptocurrencies are often incredibly volatile and can see massive price swings in a short time.  This makes them ripe for bear traps. A bear trap is a situation where traders wrongly think a coin is about to reverse a downtrend. These events often result in significant losses.  This guide will discuss crypto bear traps, how to identify them, and the risks involved in these situations. Introducing Crypto Bear Traps A bear trap happens when a trader buys assets, expecting the…

Understanding the GameFi Phenomenon

The GameFi industry is changing the way people think about gaming and finance. It provides a new way for gamers to interact with each other and earn money. It is also giving people a new way to invest their money.  The GameFi industry has the potential to change the way these industries operate. This guide will look more closely into this new business, covering several features. What Is the GameFi Sector? The GameFi sector is a crypto-based industry that uses…

The Buyback and Burn Practice Explained

In a constantly evolving and growing crypto market, it is difficult for investors to know where to put their money. One popular investment strategy in the crypto space is buying tokens of teams that conduct a buyback and burn program.  This guide will explore what a buyback and burn practice is, how it works, and its benefits and risks. What Is a Crypto Buyback and Burn Practice A crypto buyback and burn practice happens when a company buys back its…